Master trust default fund performance improves despite pandemic volatility

Retirement outcomes for master trust pension savers generally improved in the last 12 months if members remained in their existing investment strategies, according to Hymans Robertson.

The firm’s Master Trust Default Fund Review, which examined the growth, consolidation and pre-retirement stages of pension saving, showed that members in all three groups could stand to benefit despite the market volatility seen during the pandemic.

For example, Hymans noted that expected outcomes for members in the growth stage, who might have around 30 years until retirement, were now approximately 10 per cent higher than before the pandemic as they benefited from high exposure to equities during the market recovery.

Hymans Robertson head of DC provider relations, Shabna Islam, said: “In the growth phase, members are a long way from retirement and can afford to take risk, since any short-term losses are unlikely to have a significant impact on their expected income in retirement.”

While the older groups traditionally have less exposure to equities, the report stated that even the pre-retirement group’s expected outcomes had improved since the beginning of 2020 under most investment strategies.

Islam stated: “Returns in the pre-retirement phase have been generally strong over the last 3 years but there is wide variation in performance, with differences of up to 6 per cent p.a. between funds.

“Volatility has been higher than we would typically expect to see for members approaching retirement, since funds should be protecting members’ assets from market fluctuations. However higher volatilities are perhaps unsurprising, given recent market events.”

While the report highlighted the importance of investment performance, it also stressed that providers should consider it alongside factors such as adequacy of contributions, retirement age expectations and how members wish to access their savings in retirement.

Islam said: “The last year has been a year unlike any other. The Covid-19 pandemic brought many challenges to master trust default funds, yet it is encouraging that, in general, member outcomes improved over the course of 2020 and the recovery has continued during the first few months of this year.

“Despite this positive performance, we remain concerned about investment strategy differences across providers. It is important for providers to address members’ investment needs at different stages of their savings journeys.”

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